Breakingviews-U.S. trade arbiter is wrong referee in patent wars

Fri Jan 18, 2013 12:48am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Reynolds Holding

NEW YORK, Jan 17 (Reuters Breakingviews) - The U.S. International Trade Commission is the wrong referee in the high-tech patent wars. It is supposed to stop foreign infringers. But speedy procedures and a fuzzy remit are turning it into a hot spot for suing American firms. This benefits patent trolls – firms that collect rights to inventions but don't make them – and companies seeking to block rivals in a hurry. The losers may be investors and innovation.

American courts have made progress in discouraging costly patent actions of dubious merit. In 2006, the Supreme Court made it tougher for patent holders to obtain orders stopping the sale of rivals' products. And last year, federal judges in California, Wisconsin and Illinois tossed out Apple (AAPL.O) and Motorola Mobility claims that didn't clearly establish harm.

Lawyers have predictably turned to friendlier forums. Mannheim and other German cities are now favorites for their know-how and pro-patent approach. In the United States, the ITC is suddenly popular, holding almost a fifth of the nation's patent trials, according to a study by Colleen Chien, a Santa Clara University law professor.

It's easy to see why. The agency decides cases in half the time federal courts take and routinely issues orders blocking alleged infringers. Jurisdiction is rarely an issue, because most U.S. technology firms make their products abroad and import them. And last week the U.S. Court of Appeals for the Federal Circuit made filing ITC cases much easier, ruling that they no longer need to involve patented products that actually exist.

A big downside is that patent trolls are piling in. From January 2011 through June 2012, they accounted for more than a quarter of ITC patent cases, according to Chien, and targeted twice as many U.S. firms as foreign ones. Recent Boston University research found that trolls cost public companies nearly $100 billion in market value each year. Innovation also suffers, because the risk of lawsuits discourages research and development.

Smartphone makers like Samsung (005930.KS), meanwhile, are flocking to the ITC for orders quashing competitors' devices. As several courts have noted, that can undermine competition. The Supreme Court, a harsh critic recently of excessive patent litigation, has never taken an ITC case. With last week's decision ripe for review and another close behind, maybe that will change.

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CONTEXT NEWS

- The U.S. Court of Appeals for the Federal Circuit on Jan. 10 ruled that patent trolls and other companies holding rights to products that aren't actually produced may still seek relief from the U.S. International Trade Commission. The decision significantly expands the ITC's jurisdiction, which covers cases involving foreign imports that allegedly infringe patents of a "domestic industry," typically a U.S. company that makes, or has at least granted a license to a firm that makes, a U.S. product. On Jan. 11, the court heard arguments in another case that could expand the ITC's reach further.

- Court opinion: link.reuters.com/huh35t

- Reuters: Court won't review decision on Interdigital fight with Nokia [ ID:nL1E9CA7ST]

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(Editing by Richard Beales and Martin Langfield)

((reynolds.holding@thomsonreuters.com)(Reuters messaging reynolds.holding.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS PATENTS/

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